Germany’s new coalition government has promised to pursue a values-based foreign policy highlighting democracy and human rights and putting less emphasis on the country’s commercial interests, the overriding priority of successive administrations under Angela Merkel. Yet the day before he assumed office as Merkel’s successor, Olaf Scholz showed what a tightrope act this is likely to entail. Scholz took a tough line on Russian threats to Ukraine, Berlin’s most pressing foreign policy issue.
When it came to China, the more consequential diplomatic challenge, the new chancellor sounded much like the outgoing one. Asked whether Germany would follow the US diplomatic boycott of the Beijing winter Olympics, Scholz obfuscated, promising to deliberate carefully and spouting pieties about international co-operation. If this was an occasion to set a different tone to relations with the biggest export market for many Germany companies, Scholz did not take it.
And yet, the coalition agreement that Scholz’s Social Democrats have struck with the Greens and Liberals, does set a very different tone. Previous German governments regarded China as a strategic partner. This one treats it as a “systemic rival”, twice using a phrase that Merkel never uttered. It explicitly refers to human rights violations in Xinjiang, democratic backsliding in Hong Kong and to Chinese threats to retake Taiwan. Philosophically, it brings Germany closer to the US. At the same time, the coalition promises to “Europeanise” its bilateral contacts with Beijing and to devise a comprehensive China strategy in line with the EU’s. This European approach is particularly welcome. Beijing is adept at dividing and weakening the EU, and Germany’s single-minded pursuit of its business interests has often assisted it.
A crucial part of the EU’s strategy is putting in place defences against unfair competition and economic bullying by Beijing. Measures include trade countermeasures, a clampdown on foreign subsidies, reciprocal access to procurement, due diligence requirements to eliminate the use of forced labour, a carbon border adjustment mechanism and a forthcoming anti-coercion policy. The new coalition should endorse these instruments, provided they are proportionate, instead of dragging its feet as Germany has done in the past, partly to please Beijing. The market opening Berlin has extracted in return — for example under last year’s abortive EU-China investment agreement — has been inadequate.
Corporate Germany, understandably, frets that a values-based foreign policy will leave it exposed to retaliatory measures or a consumer backlash. Beijing has made such threats before. Like the Chinese government, German business leaders are hoping that it will be Scholz — who won the election vowing to emulate Merkel’s cautious and deliberative style of leadership — who will call the shots on China, and not Annalena Baerbock, the green foreign minister who is more hawkish. A bad outcome would be an emollient chancellor combined with a provocative foreign minister. It would undermine the credibility of German diplomacy and the cohesion of the coalition. Berlin needs to find a way of speaking truth to Chinese power, with Europe in solidarity.
German industry — and, it should be noted, its European suppliers — have benefited enormously from China, not just its fast growth but increasingly its innovation. Nobody in Europe thinks decoupling is a good idea. But Merkel’s persistent faith in Wandel durch Handel — change through trade — proved to be misplaced. China has changed in the wrong direction. The new German government must adapt its foreign policy accordingly.
The FT has revamped Trade Secrets, its must-read daily briefing on the changing face of international trade and globalisation.
Sign up here to understand which countries, companies and technologies are shaping the new global economy.